Money Guy Show: What to Do with Bonus Money Release Date: January 13, 2025
Hosts: Brian Preston and Bo Hanson

In this engaging episode of the Money Guy Show, hosts Brian Preston and Bo Hanson delve into practical strategies for managing bonus money and addressing various financial questions from their audience. The episode is structured around answering listener inquiries, providing actionable advice, and sharing personal insights to help listeners make informed financial decisions. Below is a detailed summary of the key discussions, insights, and conclusions from the episode.

1. Using Retirement Savings to Buy a Small Business

Listener Question:
A listener from "Second Rush" asks about the feasibility of reducing 401(k) contributions to fund the acquisition of a small business within the next 3 to 5 years. They also seek guidance on recognizing the right time to venture into other investment projects beyond traditional savings.

Key Discussions:

• Aligning Financial Goals with Investment Decisions:
  Bo Hanson emphasizes the importance of aligning financial strategies with personal life goals. He states, “Money is nothing more than a tool that allows you to accomplish the goals that you have” (00:41). He advises couples to prioritize their goals—such as financial independence, entrepreneurship, starting a family, and homeownership—and develop a clear timeline for each.

• Wealth Multiplier Tool:
  Brian Preston highlights the effectiveness of their wealth multiplier tool available at moneyguy.com. For a 30-year-old with $500,000 in investments, the tool projects this amount could grow significantly by age 65, emphasizing the power of continued investing (02:32).

• Balancing Investment and Entrepreneurship:
  Bo shares his personal experience of temporarily pausing investments to start a business, underscoring the necessity of having sufficient cash reserves to support the business during its initial phases. He advises, “Don't skip out on the step we always call. Put on your 3D glasses. Make sure you run a business plan and a cash flow summary” (06:10).

Notable Quotes:

• Bo Hanson: “Money is nothing more than a tool that allows you to accomplish the goals that you have.” (00:41)
• Bo Hanson: “Don't skip out on the step we always call. Put on your 3D glasses...” (06:10)
• Brian Preston: “If you only dig six feet, you don't reach your goal. And that cash is going to be the shovel that gets you to that point.” (06:19)

2. Investing Beyond a 20% Home Down Payment

Listener Question:
NickDanger 1080 inquires whether they should continue saving beyond a 20% down payment for their second home or invest the excess funds elsewhere, noting they are not in a hurry to purchase.

Key Discussions:

• Assessing Financial Phases:
  Brian distinguishes between the "make wealth" phase and the "maintain wealth" phase, suggesting that over-investing in a down payment might detract from building retirement assets and other financial goals (10:35).

• Opportunity Cost of Excess Savings:
  Bo points out the opportunity cost of holding excess cash versus deploying it into growth-oriented investments, especially for younger individuals with a strong savings foundation (12:21).

• Comprehensive Home Buying Checklist:
  Both hosts recommend utilizing resources like their home buying checklist to evaluate long-term plans, budget compatibility, and overall financial health before deciding to invest additional funds into a home down payment (10:33).

• Additional Costs of Second Homes:
  Bo advises factoring in ancillary costs associated with purchasing a second home, such as furniture and maintenance expenses, to ensure a smooth financial transition and avoid unexpected expenditures (14:39).

Notable Quotes:

• Brian Preston: “There is a financial order of operations, and whether you're in the make wealth phase or maintain wealth phase, it changes the strategy.” (12:21)
• Bo Hanson: “The costs of buying a home often exceed the cost it takes to acquire the home... so there is some cushion that you also need.” (14:39)

3. Optimal Use of Bonus Money

Listener Question:
Michael T seeks advice on whether to use a bonus to pay off debt, build a six-month emergency fund, invest in home remodels, or allocate it towards a car down payment.

Key Discussions:

• Financial Order of Operations:
  Bo introduces the concept of the "financial order of operations," a nine-step process designed to guide individuals on where to allocate their next dollar. He encourages listeners to assess their financial situation, such as emergency fund status and retirement contributions, before deciding on discretionary spending (16:57).

• Balanced Financial Lifestyle:
  Brian advocates for a balanced approach, suggesting a split between financial goals and personal enjoyment. He mentions a "60/40 split" where 60% of bonuses go towards savings and 40% towards lifestyle enhancements, ensuring financial discipline while allowing for some personal spending (18:10).

• Sustainable Financial Habits:
  Bo compares financial discipline to dieting, emphasizing the need for occasional indulgence to maintain long-term sustainability. He warns against excessive spending that can jeopardize future financial stability, using lottery winners as an example of those who mismanage large windfalls (19:44).

Notable Quotes:

• Bo Hanson: “Whenever we have money coming to our possession, we ought to have a system that we think through about, what's the best way for me to deploy these dollars.” (16:57)
• Brian Preston: “Good financial planning is obviously personal and built into personal finance. The financial order of operations lets you see where the answer lies.” (18:10)
• Bo Hanson: “By all means, if you get a bonus or something, enjoy yourself, but do it at scale so that you're not wasting...” (19:44)

4. Custodial Accounts vs. 529 Plans for Children

Listener Question:
jjd asks about the advantages and disadvantages of custodial accounts versus 529 plans for funding their five children’s futures, specifically focusing on education and other financial goals.

Key Discussions:

• Purpose-Driven Account Selection:
  Bo advises that the choice between custodial accounts and 529 plans depends on the intended use of the funds. For education-specific goals, 529 plans are recommended, whereas custodial accounts are suitable for broader financial independence or other intermediate-term goals (23:11).

• Tax Advantages:
  Brian explains that custodial accounts are essentially brokerage accounts tied to the child’s Social Security number, potentially offering lower tax rates on earnings. However, he notes that 529 plans provide tax-free growth for educational expenses, making them a powerful tool for funding college (23:29).

• Encouraging Financial Responsibility:
  Bo shares his strategy of setting up custodial Roth IRAs for children who have earned income, promoting saving and investing habits from a young age. He emphasizes matching contributions to incentivize children’s financial responsibility (27:34).

Notable Quotes:

• Bo Hanson: “If the goal is to save for college, maybe I should use an account like a 529. If the goal is to help them build towards financial independence, maybe I should do a custodial Roth.” (23:11)
• Brian Preston: “I've got a junior in college now, and it has worked out in a beautiful way to pay for her college. She's going to graduate debt-free.” (23:29)
• Bo Hanson: “Once your kids start having earned income... I help her set up a custodial Roth IRA... dollar for dollar matching.” (27:34)

5. Recommended Personal Finance and Development Books

Listener Question:
Isaiah C requests recommendations for books on personal finance and personal development that have influenced the hosts’ financial philosophies and personal growth.

Key Discussions:

• Brian's Recommendations:
  Brian recommends his own book, Millionaire Mission, highlighting its blend of narrative storytelling and practical financial data. He also mentions classic personal finance books like The Wealthy Barber by David Chilton and Millionaire Next Door by Thomas J. Stanley and William D. Danko, which offer valuable insights into financial behaviors and wealth accumulation (28:05).

• Bo's Recommendations:
  Bo suggests How to Win Friends and Influence People by Dale Carnegie as his top pick for personal development. He emphasizes its enduring relevance in improving interpersonal skills, which are crucial for both personal and professional success (31:05).

• Integrating Knowledge into Practice:
  Both hosts stress the importance of applying the lessons learned from these books to one’s financial and personal life. Brian shares his journey of using these resources to develop the financial order of operations, aiming to provide listeners with a comprehensive guide to managing their finances effectively (31:28).

Notable Quotes:

• Brian Preston: “The beginning of this is a storybook, can be a powerful thing. Having a narrative of your following different characters in different scenarios.” (28:30)
• Bo Hanson: “If you can understand how to interact with other people, it'll help you in your business world, your colleagues, your spouse...” (31:28)
• Brian Preston: “Millionaire Mission is an instruction manual on what to do with your next dollar. It works regardless of where you are in your financial journey.” (28:30)

6. Final Insights and Resources

Throughout the episode, Brian Preston and Bo Hanson reiterate the importance of structured financial planning and utilizing available resources to make informed decisions. They encourage listeners to:

• Utilize Tools and Courses:
  Visit moneyguy.com to access tools like the wealth multiplier and resources such as the financial order of operations course.

• Adopt a Balanced Approach:
  Balance saving, investing, and personal spending to maintain both financial health and personal satisfaction.

• Engage with the Community:
  Reach out via email for personalized advice and to engage with the Money Guy community.

Final Quote:

• Brian Preston: “Respect the financial order of operations. Respect the foo. I'm your host, Brian Preston.” (32:20)

Conclusion

This episode of the Money Guy Show offers a wealth of practical advice on managing bonus money, investing beyond traditional savings, funding educational accounts for children, and balancing personal financial growth with lifestyle choices. By addressing real listener questions and sharing personal experiences, Brian Preston and Bo Hanson provide listeners with actionable strategies to enhance their financial well-being and achieve their long-term goals.

For more resources and to access the tools discussed, visit moneyguy.com/resources.